What is in this article?:
- Low interest rates, strong farm earnings support farmland values
- Policy implications
• Rising farmland values defy slow economy.
• Farmland prices nationwide have demonstrated moderate to substantial strength.
• Changing energy policies could have an adverse affect on farm revenues, which in turn could negatively influence farmland values.
In contrast to a sluggish economy over recent years, farmland prices nationwide have demonstrated moderate to substantial strength on average, with farm real estate values increasing by as much as 31-percent in a single year (Iowa farmland values, third quarter 2011).
While the average increase in farmland value ranges between a more modest 2 percent to 10 percent annually over the last 18 years, it still stands in sharp contrast to the depressed commercial and residential real estate markets since the onset of the recession as far back as 2006.
A recently released USDA Economic Research Service study outlines the strengths and weaknesses of farmland values over the last two decades and sheds surprising detail on how farmers have been able to take advantage of strong rural land prices at a time when the rest of the nation faced troubling economic times.
While not all the news about farmland values was good nationwide, with the exception of declines in more urbanized states along the East Coast where residential and commercial development strongly influenced farmland values, rural areas in most states and regions demonstrated remarkable strength, considering the economic challenges of recent times.
The study reveals farm real estate, with a value of $1.85 trillion, accounted for 85 percent of the total value of U.S. farm assets in 2010 and represented the largest single investment in a typical farmer’s portfolio.
As such, strong farmland values have had a positive affect on the financial well-being of most agricultural producers. In addition to value-added strength to their portfolios, farm real estate also served as the principal source of loan collateral, which in turn enabled many farmers to purchase more rural property and expand their agricultural operations.
As such, ERS researchers have determined that rural land price over the last 15 years has been a critical barometer of farm sector performance and a window into the financial stability of agricultural producers.